Outlook for Wednesday's Top Movers

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Wednesday’s trading produced a number of big movers. In this article I am looking at four high-profile stocks that traded with excessive volatility, two higher and two lower.

Speculation is Over, it’s Time for Fundamental Proof

After six months and a gain of 160% Research in Motion (NASDAQ: BBRY) has now declined 21% in the last five sessions, including 12% on Wednesday. It was a buy-the-rumor but sell-the-news type of event for the company’s new BlackBerry 10 operating system as the stock gave up significant gains.

The news from the company was mostly positive -- they finally changed their name to “BlackBerry” and appear to becoming more product-driven. The company unveiled two phones: the Z10 is a touchscreen that is slightly bigger than the iPhone and the Q10 has a physical keyboard but is otherwise the same as the Z10.

The company now must live up to expectations and prove that it’s not too late to the smartphone party. Up until this point, all gains have been a result of speculation. Therefore, I agree with the “sell the news” reaction. A stock simply can not hold up gains on speculation alone; there must be a fundamental catalyst, and at this point, there is not!

Alcatel Pulls Back But is Still Cheap

Alcatel-Lucent (NYSE: ALU) had seen gains of 60% over the past three months but on Wednesday saw its first significant period of profit taking, with an 8.24% loss. There was no bad news from the company; in fact, they announced a deal with the mobile giant America Movil.

Alcatel will now build a giant submarine optical network that will connect Florida, Central America, the Caribbean, and Brazil. This network will be specifically designed to handle 100G links and will be completed later this year. I view this as good news, especially since the company is shopping its submarine cable unit. This adds value to the company and its assets.

Either way, regardless of the market’s reaction, this is still a company with more than $18 billion in revenue and a market cap of $3.5 billion. It could easily sell half its assets, overload on cash, and then grow in its highest-margin businesses with profit margins between 5% and 8%. Therefore, I say ALU is a long-term buy, but could see a short-term pullback.

CEO Retires & The Stock Goes Higher

Chesapeake Energy’s (NYSE: CHK) long-time CEO Aubrey McClendon announces that he is going to retire -- a man who built the greatest collection of energy assets in the country, and the stock rallies 6%. So why did it rally? It wasn’t because of fundamentals, or because his resignation automatically means higher profits, lower debt, and better growth. Instead it’s because of speculation -- it’s because investors believe that the company’s assets or its total business will now be sold.

McClendon has been controversial, but over many years he has been a good CEO. Now, the company faces a new direction, and that direction is a bit unclear. I view this move as unwarranted, not a fundamental move, and if an acquisition does occur, it won’t be overnight. Therefore, I am selling the news, and wouldn’t buy at these levels.

Amazon Misses on all but One Metric, But Trades Higher

Amazon (NASDAQ: AMZN) missed both top and bottom line expectations, guided for lower than expected future earnings, showed signs of slowed payment growth, yet still rose by almost 5% after announcing earnings. The company was already priced for perfection, yet with all of these weaknesses you’d think it would trade lower. In fact, it did trade lower at first, but then recovered after showing margin improvement.

Perhaps I am wrong, but investing in a retail company trading with a price/sales of 2.05 and slowed growth is setting yourself up for disaster. Therefore, I can’t find the logic in buying at this price, and would wait for a pullback before buying.

Conclusion

Illogical trends create value and value traps in the market, and of these four stocks I only see one that was logical: Research in Motion. If you own any of these stocks, or any interest you as a potential investment, then I urge you to continue your research with your own due diligence. Each of these companies could become good investments, yet using trends and identifying the perfect purchase price is crucial with high-profile volatile stocks. Therefore, take time to ensure that you’re getting the best deal, and don’t buy on days of great volatility. 


BrianNichols owns ALU. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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